Awareness, complexity are seen as roadblocks

When small-business owner John Crandall learned two years ago that his Colorado Springs bicycle shop qualified for a new health-care tax credit, he jumped to take advantage of it.

Providing health insurance helps his Old Time Bike Shop retain good employees, Crandall said. He covers half the premiums for five of the eight full-time workers who have opted into his plan and splits the savings from the tax credit with them. Last year, the credit reduced monthly premiums by $31 per employee.

“I don’t see why anyone would not do this,” Crandall said.

But Crandall is more the exception than the rule. A lack of awareness and complex rules dictating who may receive the credit may be keeping more small businesses from taking the credit.

Just 5 percent of Colorado businesses that qualify for the tax credit are using it, according to a recent survey by Kaiser Permanente. Families USA, a group that promotes affordable health care, estimated 82,000 small businesses in Colorado could be collecting this money.

The tax credit is part of the Patient Protection and Affordable Care Act, the controversial health-care law that now is phasing into effect. It is meant to encourage small businesses and nonprofits with low average wages to provide health insurance to their employees.

The law provides a tax credit for up to 35 percent of the insurance premiums now, growing to 50 percent in 2014.

To obtain the credit, a small business must have fewer than 25 full-time employees, pay average annual wages below $50,000 per full-time employee, and contribute at least 50 percent to each employee’s premium. Business owners and their families don’t qualify.

“Small businesses don’t know about it. With all the political rhetoric going around about the ACA, folks weren’t focused on learning about it,” said Rhett Buttle, a spokesman for the Small Business Majority, a business group that supports the ACA. His group offers an online calculator for estimating whether an employer will qualify for the tax credit.

Kaiser’s survey showed that of the Colorado businesses that were eligible for the credit, more than half – 56 percent – said they didn’t know about it.

Although the Internal Revenue Service mailed postcards to employers and established a website to educate potential claimants, industry resources such as insurance brokers and accountants still may not understand how the credit works.

The Colorado Society of Certified Public Accountants, for example, said it has not provided any seminars specifically on the credit, but will cover the topic in a forthcoming member newsletter and in general tax training.

Small-business owners who do their own taxes may have missed the credit, because tax software such as Turbo Tax and Quicken did not immediately include it. Current versions do.

But a bigger issue, say some observers, is that few businesses actually qualify for the credit’s maximum amount, making it less attractive to spend the time and, sometimes, the money needed to claim the credit.

“The credit is loaded with requirements that most employers are already above the levels of, such as average wage base,” said Tony Gagliardi, Colorado state director of the National Federation of Independent Business, which long has opposed the health-care law and continues to lobby for its repeal. “In the beginning of the debate of Obamacare, NFIB research determined that fewer than 12 percent of small businesses would be eligible for any portion of the tax credit. Later estimates have reduced that number down to 8 percent.”

Gagliardi said he hadn’t heard of any members of his organization who had taken advantage of the credit, mainly because few qualify.

“We don’t even try to compute it,” said Denver-area accountant Harlan Rubottom. “As nearly as we can tell, there is generally no one who would qualify for it. And the time (and therefore the fee) involved is prohibitive.”

Although the IRS offers a simple three-step guide to help businesses determine if they qualify for the credit, the instructions to apply are eight pages long.

It’s also tough to get the full amount. Businesses with 10 full-time employees who earn less than $25,000 in average wages qualify for the maximum credit. But having more employees reduces the tax credit. So does paying them more.

For example, a company with 15 employees and an average wage of $30,000 may receive a 16 percent credit.

Premiums paid by an employer can’t exceed the state average for small companies, as determined by the government. In Colorado, that’s $5,007 for a single person and $12,258 for a family this year.

In a recent study, the U.S. Government Accountability Office found that only 170,300 small employers claimed the credit in 2010, of up to 4 million eligible. The GAO blamed complex rules and the fact that many small businesses with such low wages don’t offer health insurance.